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December 13, 2013

Target Market for Annuities Is Larger Than Most Advisors Think: Genworth

Among annuity owners and non-owners, few have negative impressions

What do consumers think about annuities? Not much — leaving plenty of room for advisors to change that, according to a Genworth survey.

The survey found 68% of respondents who don’t own an annuity have a positive or neutral impression of them. Among owners, 91% had a positive or neutral impression.

Just 8% of annuity owners and 23% of non-owners had a negative view of the products.

However, while respondents reported mostly not-negative feelings about annuities, they weren’t exactly raving about them. Regardless of whether they owned an annuity or not, more than half of consumers said they were neutral about them.

According to Genworth, that means there are opportunities for advisors who have clients that might benefit from annuities.

As part of the report, Genworth surveyed more than 1,300 retirees and pre-retirees and found almost three-quarters of pre-retirees expect to retire on time, despite less than half of retired respondents saying they were able to retire on their expected date.

Among the pre-retirees who were afraid they might not retire when they planned to, money was the main thing holding them back. More than three-quarters said they would not have enough money when they retired and 36% said expenses would be too high.

That’s a legitimate concern, considering 64% of retired respondents said their expenses increased after they retired.

Genworth also conducted interviews with financial professionals and held focus groups with both professionals and consumers. The firm also surveyed 300 professionals online for the report.

Genworth found the advisors who sold the most fixed indexed annuities were targeting clients in their 40s with a moderate risk tolerance. Among all advisors selling fixed index annuities, most were targeting clients in their 50s with a low tolerance for risk.

“The findings suggest that producers need to consider a broader target profile for annuity prospects,” Charlie Gipple, national director of index products at Genworth, said in a statement. “Successful sellers are recommending annuities to younger, more risk tolerant consumers and positioning it as a vehicle for a wider array of retirement funds.”

However, Genworth also found many consumers aren’t being approached by their advisor to talk about annuities. Among non-owners, 40% said they would consider buying one, but their advisor has never mentioned it.

Genworth suggested advisors aren’t talking about annuities with their clients because they expect resistance, and they aren’t necessarily wrong. Almost 60% of consumers said they don’t need an annuity because they already have enough predictable income. Among people who were considering buying an annuity, 53% said they’d rather invest directly in the market.

“Many financial professionals simply don’t present annuities to their clients, perhaps believing that these products have a bad reputation among consumers,” Gipple said. “Our research shows that this is not universally true.”

Sixty percent of annuity owners and 61% of those considering buying an annuity said they would pay extra fees for products with downside protection and upside potential.

Naturally, owners of annuities that performed as they expected them to were more satisfied than other owners. Genworth stressed that advisors be very clear about what to expect with an annuity to keep clients happy.